The Alstom Ordeal And How The French Government Handpicks Globalization Rules

Two weeks ago, General Electric made a $13 billion bid to buy French bullet train and power equipment maker Alstom’s energy branch. In an unexpected twist, German giant Siemens replied by submitting a letter to Alstom’s board, saying it was ready to discuss "strategic opportunities" with the French company. Right after that, French President François Hollande met with GE CEO as the talks began to grab headlines.

Although Alstom's management clearly favors GE's offer, analysts in Paris are now worried this may lead to a “bidding war” between Siemens and GE over Alstom, while the French government is trying to get guarantees that there will be no lay-offs for the next three years, despite the ongoing delicate financial situation of Alstom.

Yet what makes this debacle unprecedented is not the rivalry between GE and Siemens, groups which both have a solid history of mergers and takeovers, but rather the exceptional level of involvement of the French government - and especially of its minister of economy and industry, Monsieur Arnaud Montebourg. The minister moved forward yesterday by promulgating a government decree that allows him to block takeovers in what he considers "strategic sectors". The text is under intense scrutiny by the EU, for Brussels fears it could constitute “an obstacle to the free movement of capital”.

Montebourg, a 52 year old flamboyant lawyer who once tried to become a presidential candidate in 2011, is known for his active defense of what he calls “economic patriotism” and has been a fierce opponent of any attempt made by foreign groups to buy French companies or for them to relocate elsewhere.

The minister wrote two books about his conception of the economy: “Ideas and dreams” in 2010, where he advocates “cooperative capitalism”, in which workers would own production means, and more recently another essay with an evocative title: “Vote for de-globalization!”.

In 2012, he spared no harsh words against Indian billionaire Lakshmi Mittal, threatening to nationalize his steel plant in Florange if he didn’t made substantial investments to save the site. This epic industrial battle left deep scars on France’s image, leading “The Economist” to make its November 2012 cover on what the magazine called “The Time bomb at the heart of Europe”.

No Big Bang Theory though on how to stop unemployment, one of Hollande’s key promises and one which might see him out of office if he doesn’t pull a rabbit out of a hat soon. The French government is very much involved in the train and energy provider strategy because it fears social consequences that might affect its 75,000-person workforce.

Yet it’s not only Hollande’s neck on the line if those jobs are lost. Beyond the immediate social question that this acquisition raises, analysts argue that it’s important to see the big picture emerging from France’s perceived negative attitude towards business,which might lead to aggravating the crisis that the world’s fifth largest economic power is facing.

The French government is getting increasingly involved in every business deal that it feels might lead to a loss of “economic sovereignty”, putting pressure on potential buyers and creating a climate that discourage potential investors.

In the meantime, many economists are calling upon the French government to engage in structural reforms to get the country back on track. Even intellectuals and business leaders known for their socialist empathy are turning their backs on the present leadership. A recent essay by French emblematic CEO of M&A firm “Lazard”, Mathieu Pigasse, called “Eulogy of Abnormality”, stirred up a commotion in the Elysee Palace, since François Hollande has made “Normality” the motto of his lackluster presidency.

It was a bitter pill for Hollande to swallow, given that Pigasse is also a major stakeholder in many prominent French media groups such as daily “Le Monde”, and weeklies "Le Nouvel Observateur” and “Les Inrockuptibles”. The second book recently released might also have the French president losing some sleep over it. Freshly retired from the presidency of the World Trade Organization, Pascal Lamy released an instant hit in bookshops entitled “When France Wakes Up” a title which almost resonates like an economic program. Lamy is no lightweight when it comes to France’s economic role in the EU and internationally. The former EC Trade Commissioner (1999 to 2004) is a proven multilateralist who played a critical role in Doha Round in 2001.

Hollande could do with friends in Brussels. If he continues to badger foreign companies about their hostile bids for French firms, those same companies may well begin legal action against his government through the EU’s own anti trust department.

Hollande does not seem to be listening and a pile of cases in the European Court of Justice might be a fair trade for him, to stay in office. Despite a recent change of prime minister and the launch of a huge expense cut program, France’s leadership does not seem to have the ability undertake structural reforms. Recently, a proposal by French leader of the French Business Confederation (MEDEF) to create an intermediary salary below the French minimum wage ($1500 a month) drew fire. Many analysts believe it was a step in the right direction to provide more flexibility in France’s job market, which is one of the most rigid of the world, but so far it has only fallen on deaf ears.

In France, when the going gets tough, Presidents rarely listen to experts and advisors but revert often to protectionism. It’s “normal”.